Question 1

Which of the following is NOT a reason that legally adopted budgets may not be readily comparable to amounts reported in the GAAP-based financial statements?
A) Differences in basis of accounting.
B) Differences in timing.
C) Differences in reporting entity.
D) Differences in recognition.

Accepted Answer

Differences in recognition are not typically a reason for discrepancies between legally adopted budgets and GAAP-based financial statements. The other options (A, B, C) are common reasons for such differences.

Question 2

A governmental entity has formally integrated the budget into its accounting records and uses encumbrance accounting. During the year the government ordered but had not yet received a new police car. What effect will this event have on the unencumbered balance in the account "Expenditures-capital outlay, police department"?
A) The balance in the account will not be affected until the police car is received.
B) The balance in the account will be increased.
C) The balance in the account will be decreased.
D) Purchase orders never affect any budgetary account balances.

Accepted Answer

Encumbrance accounting records the obligation to purchase the police car, reducing the unencumbered balance.

Question 3

To close Encumbrances at the end of the year which of the following entries should be made?
A) Debit Encumbrances; Credit Fund balance.
B) Debit Reserve for encumbrances; Credit Encumbrances.
C) Debit Fund balance; Credit Encumbrances.
D) No closing entry needed.

Accepted Answer

The answer of To close Encumbrances at the end of...

Question 4

Which of the following is the best reason for preparing budgets for government entities on the cash basis?
A) Cash basis budgeting helps to achieve interperiod equity.
B) Cash basis budgeting helps to ensure that the government will receive no more in revenues than itis required to disburse.
C) Cash basis budgeting helps a government plan to have cash on hand to pay bills
D) Cash basis budgeting more accurately reflects the economic impact of fiscal activities.

Accepted Answer

Cash basis budgeting is primarily focused on managing cash flows, ensuring that a government has the necessary cash available to meet its immediate financial obligations, such as paying bills.

Question 5

A governmental entity has formally integrated the budget into its accounting records. At the end of the third quarter the ledger account "Expenditures--salaries" has a $100,000 debit balance. Which of the following is a true statement?
A) The entity has $100,000 available to spend on salaries.
B) The entity has incurred salaries in the amount of $100,000.
C) The entity had paid salaries in the amount of $100,000.
D) The entity has overspent its budget for salaries by $100,000.

Accepted Answer

The answer of A governmental entity has formally integrated the...

Question 6

A governmental entity has formally integrated the budget into its accounting records. At year-end the ledger account "Estimated Revenues" has a debit balance. Which of the following is the best explanation for the debit balance?
A) The entity overestimated property tax revenue it expected to be recognized.
B) The entity underestimated property tax revenue when preparing its budget.
C) The entity collected more in property taxes than it anticipated.
D) There is no logical explanation; revenue accounts usually do not have debit balances.

Accepted Answer

A debit balance in the "Estimated Revenues" account indicates that the actual revenues were less than anticipated, suggesting an overestimation of property tax revenue.

Question 7

At year-end Oakland County had $3,000 of outstanding purchase commitments on the books. After the appropriate closing entries are made, what is the effect on the total fund balance of Oakland County?
A) It is $3,000 greater than it would have been if the purchase commitments had been fulfilled by year-end.
B) It is $3,000 less than it would have been if the purchase commitments had been fulfilled by year-end.
C) It is the same as it would have been if the purchase commitments had been fulfilled by year-end; it will be reduced by $3,000 next year.
D) It is the same as it would have been if the purchase commitments had been fulfilled by year-end; it will not change next year.

Accepted Answer

The outstanding purchase commitments of $3,000 are not yet fulfilled, so the fund balance is $3,000 greater than it would have been if the commitments had been fulfilled by year-end.

Question 8

A university that formally integrates the budget in the accounting system and uses encumbrance accounting orders some new computers that will cost approximately $20,000. To recognize this event the university should make which of the following entries?
A) Debit Expenditures $20,000; Credit Encumbrances $20,000
B) Debit Encumbrances $20,000; Credit Reserve for encumbrances $20,000
C) Debit Encumbrances $20,000; Credit Accounts payable $20,000
D) No entry required when the order is placed.

Accepted Answer

When a university (or any governmental entity) using encumbrance accounting places an order, it records the commitment to spend funds by debiting Encumbrances and crediting Reserve for Encumbrances. This entry recognizes the commitment of funds before the actual expenditure occurs, ensuring that the budget is not overspent.

Question 9

A public school district formally adopted a budget with estimated revenues of $800 and approved expenditures of $780. Which of the following is the appropriate entry to record the budget?
A) Debit Estimated revenues $800; Credit Appropriations $780; Credit Fund balance $20.
B) Debit Appropriations $780; Debit Fund balance $20; Credit Estimated revenues $800.
C) Debit Encumbrances $780; Debit Fund balance $20; Credit Estimated revenues $800.
D) Memorandum entry only.

Accepted Answer

The correct entry to record the budget in governmental accounting involves debiting (increasing) Estimated Revenues for the amount expected to be received ($800) and crediting (increasing) Appropriations for the amount of expenditures approved ($780). The difference between estimated revenues and appropriations, if revenues are higher, is credited to the Fund Balance ($20), indicating an increase in the fund's net position or available resources.

Question 10

A county general fund budget includes budgeted revenues of $900 and budgeted expenditures of $890. Actual revenues for the year were $915. To close the estimated revenues account at the end of the year
A) Debit Estimated revenues $15
B) Credit Estimated revenue $15
C) Debit Estimated revenues $900
D) Credit Estimated revenues $900

Accepted Answer

To close the estimated revenues account at the end of the year, you would credit the estimated revenues account for the amount that was initially budgeted, which is $900. This action zeroes out the account for the year.

Question 11

A county previously encumbered $15,000 for the acquisition of supplies. The supplies were received at a total cost of $14,700. To recognize this event the county should make which of the following entries?
A) Debit Reserve for encumbrances $15,000; Credit Encumbrances $15,000.
B) Debit Reserve for encumbrances $14,700; Credit Encumbrances $14,700.
C) Debit Encumbrances $15,000; Credit Reserve for encumbrances $15,000.
D) Debit Encumbrances $14,700; Credit Reserve for encumbrances $14,700.

Accepted Answer

When the supplies are received at a cost lower than the encumbered amount, the correct entry is to reverse the original encumbrance for the full amount. This is done by debiting the Reserve for Encumbrances and crediting Encumbrances for the full encumbered amount of $15,000, not just the actual cost of $14,700.

Question 12

The City of Lakeview adopts its budget on a basis of accounting that permits outstanding purchase commitments to be charged against the budget in the year that the goods are ordered instead of in the year they are received. During 2018, the city received $4,000 of supplies (of which $3,000 had been ordered in 2018 and $1,000 was ordered in 2017) and had $500 of outstanding purchase commitments for supplies at year-end. In the budget-to-actual comparison, the expenditures for supplies would be:
A) $3,000.
B) $3,500.
C) $4,000.
D) $4,500.

Accepted Answer

The expenditures for supplies would be $3,500, which includes the $3,000 of supplies ordered and received in 2018 plus the $500 of outstanding purchase commitments at year-end. The $1,000 of supplies ordered in 2017 and received in 2018 would have been charged against the 2017 budget, not 2018.

Question 13

When Spruce City receives goods at a cost of $9,700 that were encumbered in the prior year for $10,000, which of the following entries are required (assume that encumbrances lapse at year end)?
A) Debit Expenditures $9,700; Credit Accounts payable $9,700; no entry for Encumbrances.
B) Debit Expenditures $9,700 and Reserve for encumbrances $10,000; Credit Accounts payable $9,700 and Encumbrances $10,000.
C) Debit Expenditures $10,000 and Reserve for encumbrances $10,000; Credit Accounts payable $10,000 and Encumbrances $10,000.
D) Debit Reserve for encumbrances $10,000; Credit Encumbrances $10,000; no entry for Expenditures.

Accepted Answer

The correct entry involves reversing the original encumbrance by debiting Reserve for Encumbrances and crediting Encumbrances for the full amount of $10,000. Additionally, the actual expenditure is recorded by debiting Expenditures and crediting Accounts Payable for the actual cost of $9,700. This accounts for both the reversal of the encumbrance and the recording of the actual expenditure.

Question 14

Which of the following bases of accounting has been established by GASB for use in the preparation of the general fund budget?
A) Cash basis.
B) Modified accrual basis.
C) Accrual basis.
D) None of the above.

Accepted Answer

The answer of Which of the following bases of accounting...

Question 15

Which of the following is NOT true about cash basis budgeting?
A) Cash basis budgeting permits a government to balance its budget by delaying cash disbursements.
B) Cash basis budgeting permits a government to balance its budget by advancing the recognition of revenue.
C) Cash basis budgeting encourages interperiod equity.
D) Cash basis budgeting complicates financial accounting and reporting.

Accepted Answer

Cash basis budgeting does not encourage interperiod equity because it recognizes transactions only when cash changes hands, which can lead to a mismatch between when revenues are earned and when they are received, as well as when expenses are incurred and when they are paid. This approach can distort the true financial position and performance of an entity over time, making it challenging to ensure that the costs of providing services are borne by those benefiting from the services in the same period.

Question 16

A city received supplies that had been previously encumbered. The supplies were encumbered for $5,000 and had an actual cost of $4,900. To recognize this event the county should make which of the following entries?
A) Debit Reserve for encumbrances $5,000 and Supplies $4,900; Credit Encumbrances $5,000 and Vouchers payable $4,900.
B) Debit Encumbrances $5,000 and Supplies $4,900; Credit Reserve for encumbrances $5,000 and Vouchers payable $4,900.
C) Debit Reserve for encumbrances $4,900 and Supplies $4,900; Credit Encumbrances $4,900 and Vouchers payable $4,900.
D) Debit Encumbrances $4,900 and Supplies $4,900; Credit Reserve for encumbrances $4,900 and Vouchers payable $4,900.

Accepted Answer

The correct entry involves debiting Reserve for encumbrances for the full encumbered amount ($5,000) and Supplies for the actual cost ($4,900), while crediting Encumbrances for the full encumbered amount ($5,000) and Vouchers payable for the actual cost ($4,900).

Question 17

GASB requires that government entities present their budget-to-actual comparison data on which of the following bases of accounting?
A) Budgetary basis.
B) Cash basis.
C) Modified accrual basis.
D) Accrual basis.

Accepted Answer

GASB (Governmental Accounting Standards Board) requires that government entities present their budget-to-actual comparison data on the budgetary basis of accounting. This is because budgets are typically prepared and adopted using a budgetary basis, which may differ from the entity's basis of accounting used for financial reporting purposes.

Question 18

To close Reserve for encumbrances at the end of the year which of the following entries should be made?
A) Debit Reserve for encumbrances; Credit Fund balance.
B) Debit Reserve for encumbrances; Credit Encumbrances.
C) Debit Fund balance; Credit Reserve for encumbrances.
D) No closing entry needed.

Accepted Answer

The answer of To close Reserve for encumbrances at the...

Question 19

A city formally adopted a budget at the beginning of the current year. Budgeted revenues were $500 and budgeted expenditures were $490. During the year actual revenues were $520 and actual expenditures were $480. Fund balance at the end of the current year in comparison to fund balance at the end of the preceding year will be
A) $10 greater.
B) $30 greater.
C) $40 greater.
D) $50 greater.

Accepted Answer

The fund balance increases by the difference between actual revenues and actual expenditures. Actual revenues were $520 and actual expenditures were $480, resulting in a surplus of $40.

Question 20

During the previous year, Bane County closed its Encumbrances account. At the end of the previous year there was $5,000 of outstanding purchase commitments. To restore these commitments to the accounts, which of the following entries would be required?
A) Debit Reserve for encumbrances $5,000; Credit Encumbrances $5,000.
B) Debit Encumbrances $5,000; Credit Reserve for encumbrances $5,000.
C) Debit Encumbrances $5,000; Credit Fund balance $5,000
D) Debit Fund balance $5,000; Credit Reserve for encumbrances $5,000.

Accepted Answer

The answer of During the previous year, Bane County closed...

Quiz 3: Issues of Budgeting and Control

Which of the following is NOT a reason that legally adopted budgets may not be readily comparable to amounts reported in the GAAP-based financial statements?

To close Encumbrances at the end of the year which of the following entries should be made?

Which of the following is the best reason for preparing budgets for government entities on the cash basis?

A governmental entity has formally integrated the budget into its accounting records. At the end of the third quarter the ledger account "Expenditures--salaries" has a $100,000 debit balance. Which of the following is a true statement?

A governmental entity has formally integrated the budget into its accounting records. At year-end the ledger account "Estimated Revenues" has a debit balance. Which of the following is the best explanation for the debit balance?

At year-end Oakland County had $3,000 of outstanding purchase commitments on the books. After the appropriate closing entries are made, what is the effect on the total fund balance of Oakland County?

A university that formally integrates the budget in the accounting system and uses encumbrance accounting orders some new computers that will cost approximately $20,000. To recognize this event the university should make which of the following entries?

A public school district formally adopted a budget with estimated revenues of $800 and approved expenditures of $780. Which of the following is the appropriate entry to record the budget?

A county general fund budget includes budgeted revenues of $900 and budgeted expenditures of $890. Actual revenues for the year were $915. To close the estimated revenues account at the end of the year

A county previously encumbered $15,000 for the acquisition of supplies. The supplies were received at a total cost of $14,700. To recognize this event the county should make which of the following entries?

When Spruce City receives goods at a cost of $9,700 that were encumbered in the prior year for $10,000, which of the following entries are required (assume that encumbrances lapse at year end) ?

Which of the following bases of accounting has been established by GASB for use in the preparation of the general fund budget?

Which of the following is NOT true about cash basis budgeting?

A city received supplies that had been previously encumbered. The supplies were encumbered for $5,000 and had an actual cost of $4,900. To recognize this event the county should make which of the following entries?

GASB requires that government entities present their budget-to-actual comparison data on which of the following bases of accounting?

To close Reserve for encumbrances at the end of the year which of the following entries should be made?

During the previous year, Bane County closed its Encumbrances account. At the end of the previous year there was $5,000 of outstanding purchase commitments. To restore these commitments to the accounts, which of the following entries would be required?